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Do We Look At Investing The Right Way?
By plrprousers | December 6, 2008
Probably since the day the markets opened people have been talking about them being either “overbought” or “undersold”. To be sure, only one of the two terms has any credibility and that is oversold. While it is possible it is unlikely since the only consideration that a market would really be oversold in is when the cost of a share is zero. That is oversold! That can be contrasted when we consider the term overbought, because in reality the sky is the limit for how high any given stock could potentially rise. So this case can never really occur. So there is no such thing as overbought at all. A lot of types of investing programs try to tell you the opposite.
To give people credit, I know what they are talking about when they use these terms, they are just thinking relatively. When they say “overbought” they really just mean that the market is higher than before, and they think it won’t go any higher. Conversely when they say oversold, they mean that the market is lower than before and they think the market will go higher. That’s why I decided to coin a couple new terms, to put a new perspective on the whole thing. This is really quite exciting. New ideas have that exciting effect on me. From now on I will advocate the use of the words almost to the opposite of the current lexicon being “underbought” and “undersold”. They have actually already caught on in some places like eminiforecaster.
So what is this “Underbought”? All that this means is that the market has not gone up as much as it will in the future. Alternatively “undersold” means that the market has not gone down as much as it will in the future. So these important key terms carry a whole different kind of meaning to their (rather meaningless) counterparts “overbought” and “oversold”.
My goal is to move people away from looking back at the past to display where markets will go in the future. Let’s get over it and move on. The fact is the most successful investors in the world are forward looking market participants. They look for where the trend of the market is heading. They are forward looking investors.
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